CUs Cited as Potential Tax Revenue Booster

A report from an economic advisory panel to the Obama Administration broke into the usual late summer political doldrums last week and returned credit unions to the perennial tax debate again.

The Presidential Economic Recovery Advisory Board made the recommendation of eliminating credit unions' federal tax exemption as part of a much larger set of ideas of how the current federal tax structure could be simplified and improved. The panel was charged with making recommendations regarding the tax system "to achieve three broad goals: simplifying the tax system, improving taxpayer compliance with existing tax laws, and reforming the corporate tax system," the report said. Reports from previous administrations have made the similar recommendations.

"Unlike other financial institutions like banks and thrifts, credit unions do not pay corporate taxes on their income," the report said. "This puts them at a competitive advantage relative to other financial institutions for tax reasons. Eliminating this exemption would raise revenue and level the playing field, but would clearly raise taxes on credit unions."

In Wisconsin, Kurt R. Bauer, CEO of the Wisconsin Bankers Association quoted the report and said "taxpaying financial institutions that face aggressive competition from profit-driven credit unions applaud and endorse PERAB's recommendation to level the playing field."

This drew a press release from Brett Thompson, CEO of the Wisconsin Credit Union League. "There they go again. WBA is blatantly mischaracterizing information to suit its own anti-consumer agenda," he said. "The report, which is by an independent panel not tied to government despite its use of the term 'presidential' in its name, merely states a list of options the government could pursue to reform tax law. The four lines WBA cites are not recommendations, they do not represent the views of the Obama administration and they don't address what tax policy decisions are in consumers' best interests."

He added, "While banks have forever wished to heap more taxes on the already tax-burdened residents of Wisconsin who own credit unions, no one who sets public policy has ever deemed that a good move-and for good reason. I don't believe for a second that the president or Congress wants to raise taxes on 92 million Americans in this manner considering the current economic climate."

For their part, CUNA and NAFCU initially downplayed the report, noting that the panel did not have a policy making role. "The inclusion of the credit union federal tax exemption is not unusual in reports such as these that tend to take note of every possible revenue option under the sun," said CUNA President/CEO Bill Cheney, speaking of the report. "We will be vigilant, as always. But the report explicitly states that these are policy options, not recommendations, and that they should not be construed as administration policy."

NAFCU President/CEO Fred Becker stated, "This proposal runs counter to the president's objective of not overburdening taxpayers, particularly those who are struggling to survive in these challenging economic times."

The next day each association sent letters to the board, objecting to credit unions' inclusion.

Cheney's Aug. 31 letter pointed out, "Indeed, as you well know, most tax preferences were enacted with the express purpose of fostering certain types of economic activity that Congress wished to encourage," he said. "A tax preference that advances public policy so that the benefits exceed the foregone tax revenue can be an extremely cost effective way of advancing important goals. As history has shown, this is certainly the case with the credit union tax exemption."

Becker attacked the report's assertion that the tax exemption gives CUs a competitive advantage since it comes with a large number of rules attached.

"The board's assertion that credit unions operate at a competitive advantage to other financial institutions is, quite simply, untrue." Becker wrote. He listed fields of membership and business lending restrictions among the credit union charter detractors.